You are a public accountant (PA) assigned to the audit of Wedgeall Company. As you are reviewing internal controls, you note some weaknesses in the petty cash and bank deposit system. Petty cash is received and deposited by the same person (Seymore) in the receivables department. As you test internal controls, you discover that there seems to be times when there are cash shortages. You decide to follow up with enquiry. As you are speaking to Seymore, you discover that his wife has just given birth to triplets. You begin to ask Seymore about the shortage in cash, but he seems to be defensive and a little irritable. As you walk away, you wonder what you should do next.

Seymore was worried as the auditor had come to ask him about petty cash. He knew what he was doing was wrong, but he just didn’t feel he had any choice. He had been hit with a lot of unexpected expenses recently as a result of his wife giving birth to triplets. He just wasn’t able to make ends meet, and he always said he would do anything for his family. So when he noticed how weak the company’s internal controls were in the areas of petty cash and bank deposits, he began to tap into these sources for some extra cash. At first it was a little bit here and there, but then as his expenses grew and he became more comfortable with what he was doing, it became more frequent and began to involve much bigger dollars. He felt bad about what he was doing, and he planned to pay it all back once the worst was over as far as his expenses go. So in a way, he felt he was only borrowing the company’s money for a while.

Required:

Analyze the above situation.